Unilever 2013 Annual Report Download - page 41

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DESCRIPTION OF RISK WHAT WE ARE DOING TO MANAGE THE RISK
BUSINESS TRANSFORMATION
Successful execution of business transformation proects s
key to delverng ther ntended busness benefts and avodng
dsrupton to other busness actvtes
Unlever s contnually engaged n major change projects, including
acquisitions and disposals and outsourcing, to drive continuous
improvement in our business and to strengthen our portfolio and
capabilities.
Failure to execute such transactions or change projects
successfully, or performance issues with third party outsourced
providers on which we are dependent, could result in under-delivery
of the expected benefits. Furthermore, disruption may be caused in
other parts of the business.
All acquisitions, disposals and global restructuring projects
are sponsored by a member of the Unilever Leadership Executive.
Regular progress updates are provided to the Unilever
Leadership Executive.
Sound project disciplines are used in all merger, acquisitions,
restructuring and outsourcing projects and these projects are
resourced by dedicated and appropriately qualified personnel.
The performance of third party outsourced providers is kept under
constant review, with potential disruption limited to the time and
cost required to install alternative providers.
Unilever also monitors the volume of change programmes
underway in an effort to stagger the impact on current operations
and to ensure minimal disruption.
EXTERNAL ECONOMIC AND POLITICAL RISKS AND
NATURAL DISASTERS
Unlever operates across the globe and s exposed to a range of
external economc and poltcal rsks and natural dsasters that
may affect the executon of our strategy or the runnng of our
operatons
Adverse economic conditions may result in reduced consumer
demand for our products, and may affect one or more countries
within a region, or may extend globally.
Government actions such as fiscal stimulus, changes to taxation
and price controls can impact on the growth and profitability
of our local operations.
Social and political upheavals and natural disasters can disrupt
sales and operations.
In 2013, more than half of Unilever’s turnover came from emerging
markets including Brazil, India, Indonesia, Turkey, South Africa,
China, Mexico and Russia. These markets offer greater growth
opportunities but also expose Unilever to economic, political
and social volatility in these markets.
The breadth of Unilever’s portfolio and our geographic reach
help to mitigate our exposure to any particular localised risk
to an extent. Our flexible business model allows us to adapt
our portfolio and respond quickly to develop new offerings
that suit consumers’ and customers’ changing needs during
economic downturns.
We regularly update our forecast of business results and cash flows
and, where necessary, rebalance investment priorities.
We have continuity planning designed to deal with crisis
management in the event of political and social events and
natural disasters.
We believe that many years of exposure to emerging markets
have given us experience operating and developing our business
successfully during periods of economic, political or social change.
TREASURY AND PENSIONS
Unlever s exposed to a varety of external fnancal rsks n
relaton to Treasury and Pensons
Changes to the relative value of currencies can fluctuate widely
andcould have a significant impact on business results. Further,
because Unilever consolidates its financial statements in euros it
issubject to exchange risks associated with the translation of the
underlying net assets and earnings of its foreign subsidiaries.
We are also subject to the imposition of exchange controls by
individual countries which could limit our ability to import materials
paid in foreign currency or to remit dividends to the parent company.
Currency rates, along with demand cycles, can also result in
significant swings in the prices of the raw materials needed
to produce our goods.
Unilever may face liquidity risk, i.e. difficulty in meeting its
obligations, associated with its financial liabilities. A material and
sustained shortfall in our cash flow could undermine Unilever’s
credit rating, impair investor confidence and also restrict Unilever’s
ability to raise funds.
Currency exposures are managed within prescribed limits and by
theuse of forward foreign exchange contracts. Further, operating
companies borrow in local currency except where inhibited by local
regulations, lack of local liquidity or local market conditions. We
also hedge some of our exposures through the use of foreign
currency borrowing or forward exchange contracts.
Our interest rate management approach aims to achieve an optimal
balance between fixed and floating rate interest exposures on
expected net debt.
We seek to manage our liquidity requirements by maintaining
accessto global debt markets through short-term and long-term
debt programmes. In addition, we have high committed credit
facilities for general corporate purposes.
Group treasury regularly monitors exposure to our banks,
tightening counter-party limits where appropriate. Unilever actively
manages its banking exposures on a daily basis.
Unlever Annual Report and Accounts 201338 Strategic report
RISKS CONTINUED